I get tickled when people tell me that they read a certain book or listened to a certain guru and followed the plan to the letter, but still have financial trouble or they can’t meet their goals. They seem stymied as to why the plan didn’t work. I often ask them if the plan was tailored to their specific situation, beliefs, needs, and goals. They always say, “Well, no, it was just the plan in the book. But it must be good because the author (or guru) claims to have helped a million people.”
What they don’t yet understand is that it’s called “personal finance” for a reason. Personal finance is personal. Yes, there are some generalizations that apply to most people such as putting away a set amount each payday into an account for emergencies. This is good advice for almost anyone, unless your crystal ball tells you that you will never have an emergency. But a lot of personal finance advice is relevant only to the extent that it applies to your unique situation. The advice to cut out lattes only works if you’re already drinking them. If you’re not drinking lattes, you’ll have to find some other way to save money.
When you set out to improve and manage your finances you have to remember that they are your finances and no one else’s. You can learn from the advice of others, but when it comes time to do the work you have to take into account your unique circumstances in order to succeed. So what personal items do you have to account for?
Your income: Some plans assume a certain level of income. If you fall below or above that mark you may have to adjust the plan to compensate.
Your ability to generate more income: Some plans suggest you get a part time job to bring in more income. This may not be possible if you spend your nights caring for an aging parent or disabled spouse. In such a case you’ll have to find a way to generate income from home, or find other ways to reduce spending.
Your religious beliefs: If you believe in tithing and aren’t willing to give it up, you’ll have to find a way to work it into the plan.
Your social beliefs: If you believe strongly that your money shouldn’t go to certain companies or causes, you may need to adjust your investment and spending strategies. Similarly, if you are adamant about donating to specific causes, you will have to reduce spending in other areas in order to make that possible.
What you like to do and what you want to own: Maybe you want to blow all your money on travel or video games. Maybe you want to eat out every night or own a Ferrari. That’s fine. It’s your money and what you want to do with it is up to you. As long as you aren’t relying on others to carry you and you aren’t shirking your other financial obligations, it’s up to you how you spend your money. Plans that tell you to give up eating out or some other thing that you love will just make you mad. You have to modify the plan to support your personal desires.
Your long term goals: Do you want to have a big retirement fund so you can buy a $300,000 motor home and see the country? Pay for all your kids’ college educations? Go back to school yourself? Amass enough wealth so you can give to all your favorite causes? Leave a huge inheritance? What you want your money to do long term will determine how you allocate it. Everyone’s goals are different and a plan that preaches nothing but retirement funding when you want to pay for your motor home won’t help you.
Your short term goals: Do you want to get out of debt? Buy a new car? Save for a down payment on a house? Renovate your existing home? Get ready for a child? Everyone wants to do different things, and in different orders and ways. How you want to meet your short term goals will determine how you work your financial plan.
Your priorities: Maybe you want to both renovate your house and buy a new car. You will likely have to decide which should come first and then work toward the higher priority first. Most generic financial plans don’t take into account your personal priorities.
Your level of commitment and your weaknesses: If you are fired up to deal with your finances, great. If you’re a bit reluctant, you’ll need a plan that either inspires you or makes allowances for your reluctance. If you have areas where you are weak, you’d better strengthen them or create a plan that works in spite of your weaknesses.
Your changing life: Whatever plan you create today will probably not work in five years. And that new plan will probably be useless five years after that. Your circumstances, health, income, family size, and desires are always changing. What was important today may not be important tomorrow. And there will be things beyond your control, such as inflation, recessions, job losses, and even boom times that will impact your financial plans. A generic plan cannot possibly account for all of the changes you will go through.
That’s not to say that all financial plans are useless. The financial plans you find in books or on TV segments can be helpful. You can take pieces from several plans and cobble them together to make something that works for you. And you can learn a lot by looking a different plans and seeing how the author’s approach finance. Extra information is rarely a bad thing. But when it comes to following something word for word, you’re likely to run into trouble when your unique, real life gets in the way.
Of course, creating a plan that works for you takes a lot of effort, and that’s why people turn to books and ready-made plans first. As with weight loss, it would be so much easier if you could just pick up a plan, follow it to a tee and then the miracle happens and your finances are fixed. It’s much harder to inventory your life, to be honest with yourself, to admit where you’ve gone wrong, and to account for all of the things you want, hope for, and need. And then adjust that plan constantly to keep up with the changes in your life. But creating your own plan is the only way to win. You have to make a plan that is personal for you.
And while you’re working your plan, you have to learn how to tune out all the people who are telling you that you’re doing it wrong. They may not agree with or understand your choices. They will tell you that donating all of your extra money to an animal shelter is a waste and that you should be saving for a home. But that is their priority, not yours. They are working their own plan (or they have no plan and are simply parroting something they heard elsewhere). As long as you have a plan that works for you and are sticking to it, you’re doing it right. You’re keeping your finances personal.